What is the Accounting Equation? The accounting equation is a basic principle of accounting and a fundamental element of the balance sheet. The equation is as follows: Assets = Liabilities + Shareholder’s Equity This equation sets the foundation of double-entry accounting, also known as double-entry bookkeeping, and highlights the structure of the balance sheet. Double-entry…
What are Biological Assets? Biological Assets are assets that are living – for example, trees, animals, or cannabis. The balance sheet breaks down a company’s assets at a given point in time, classifying them by type and attributing a value to them. The International Accounting Standard 41 (IAS 41) states that a biological asset is any…
What is Revenue vs Income? This guide provides an overview of the main differences between revenue vs income. Revenue is the sales amount a company earns from providing services or selling products (the “top line”). Income can sometimes be used to mean revenue, or it can also be used to refer to net income, which…
What is the Percentage of Completion Method? The percentage of completion method is a revenue recognition accounting concept that evaluates how to realize revenue periodically over a long-term project or contract. Revenue, expenses, and gross profit are recognized each period based on the percentage of work completed or costs incurred. Understanding the Percentage of Completion…
What is the Completed Contract Method? The completed contract method of revenue recognition is a concept in accounting that refers to a method in which all of the revenue and profit associated with a project is recognized only after the completion of the project. In addition to the completed contract method, another way to recognize revenue…
What is a Capital Expenditure? A capital expenditure (“capex” for short) is the payment with either cash or credit to purchase long-term physical or fixed assets used in a business’s operations. The expenditures are capitalized on the balance sheet (i.e., not expensed directly on a company’s income statement) and are considered an investment by a…
What is the Cost Recovery Method? The cost recovery method of revenue recognition is a concept in accounting that refers to a method in which a business does not recognize profit related to a sale until the cash collected exceeds the cost of the good or service sold. In other words, using this method, profits…
What is JAJO (January, April, July, and October)? JAJO is one of the three option cycles that comprise multiple options contracts with a successive expiration date in the months of January, April, July, and October. Options contracts come with expiration dates that fit in a cycle, which averages nine months. Each cycle comprises two near-term…
What is Allowed Depreciation? Allowed depreciation refers to the depreciation that a business is allowed to deduct from its tax liabilities. The annual depreciation of assets needs to be considered while calculating an individual’s or company’s taxable income. It is because depreciation decreases the ordinary income of the taxpayer (which may be a company or…
What is a Reporting Period? A reporting period, also known as an accounting period, is a discrete and uniform span of time for which the financial performance and financial position of a company are reported and analyzed. In other words, the data contained in the financial statements are generated by the company’s finance professionals from…
